 Buy on rumours - sell on news: a manipulative trading strategyLSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library Abstract: A trader who receives a signal about a future public announcement can exploit this private information twice. First, when he receives his signal, and second, at the time of the public announcement. The second round advantage occurs because the early-informed trader can best infer the extent to which his information is already reflected in the current price. This paper shows that early-informed traders trade very aggressively at the time they receive their signal. They try to manipulate the price in order to enhance their informational advantage at the time of the public announcement. In addition, they speculate by building up a position in period one, which they partially unwind 'on average' in period tow. The analysis shows that informational leakage makes prices prior to public announcements more informative but reduces informational efficiency in the long run. Keywords: market microstructure; stock price manipulation; asymmetric information (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119135 Access Statistics for this paper More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC. |
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